Internal Analysis of Financial Statement

K.C. COLLEGE

EXECUTIVE SUMMARY

Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, sub-business or project.

It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions.

Internal analysis of financial statement refer to analysis of the internal functioning of the firm to know the financial well being of the company. It helps the manager and other officials take decisions relating to certain matters of the company. For eg. If a company needs to pay urgently to its creditors or pay dividens to the shareholders, it can assess the capital flowing in and out of the company by analysing the cash flow statement.

Out of several tools and techniques used to analyse the internal analysis of a financial statement, some of them have been used in to analyse two companies in the following project:

Comparative analysis of financial statement.

Common size statements Cash flow statement Ratio analysis of the statements Payback period method Trend analysis Debtors aging analysis

For the purpose of proper understanding of the analysis of financial statements, two fundamentally strong companies with a strong market base from the I.T. sector have been chosen namely:

Wipro technologies ltd. Tata consultancy services ltd.

Internal analysis of financial statement Page 1

http://en.wikipedia.org/wiki/Project

http://en.wikipedia.org/wiki/Business

K.C. COLLEGE

INTRODUCTION

FINANCIAL STATEMENT:

A financial statement of a company is a written report which quantitatively describes the financial health of a company.

Business is mainly concerned with the financial activities. In order to ascertain the financial status of the business, every enterprise prepares certain statements, known as financial statements. Financial statements are mainly prepared for decision making purposes. But the information as is provided in the financial statements is not adequately helpful in drawing a meaningful conclusion. Thus, an effective analysis and interpretation of financial statements is required.

IMPORTANCE OF A FINANCIAL STATEMENT:

At regular period public companies must prepare documents called financial statements. Financial statements show the financial performance of an company. They are used for both internal-, and external purposes. When they are used internally, the management and sometimes the employees use it for their own information. Managers use it to plan ahead and set goals for upcoming periods. When they use the financial statements that were published, the management can compare them with their internally used financial statements. They can also use their own and other enterprises’ financial statements for comparison with macroeconomical datas and forecasts, as well as to the market and industry in which they operate in.

Financial statements are useful, because they show the financial condition of a company at a given period. There are many types of


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financial statements uses and purposes, measuring different financial aspects of the company. They can be used for both internal-, and external uses.

ANALYSIS OF FINANACIAL STATEMENT:

Analysis means establishing a meaningful relationship between variousitems of the two financial statements with each other in such a way thata conclusion is drawn. By financial statements we mean two statements:

(i) Profit and loss Account or Income Statement(ii) Balance Sheet or Position Statement

These are prepared at the end of a given period of time. They are theindicators of profitability and financial soundness of the business concern.

The term financial analysis is also known as analysis and interpretation of financial statements. It refers to the establishing meaningful relationship between various items of the two financial statements i.e. Income statement and position statement. It determines financial strength and weaknesses of the firm.

Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements is very essential to measure the efficiency, profitability, financial soundness and future prospects of the business units.

PURPOSE OF FINANCIAL ANALYSIS:

Financial analysis serves the following purposes :


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Measuring the profitability Indicating the trend of Achievements Assessing the growth potential of the business Comparative position in relation to other firms Assess overall financial strength Assess solvency of the firm

METHODS OF FINANCIAL ANALYSIS:

Financial analysts often compare :

Past Performance : Across historical time periods for the same firm (the last 5 years for example)

Future Performances : Using historical figures and certain mathematical and statistical techniques, including present and future values, This extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.

Comparative Performance : Comparison between similar firms.

TECHNIQUES AND TOOLS OF FINANCIAL STATEMENTANALYSIS:

Financial statements give complete information about assets, liabilities,


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equity, reserves, expenses and profit and loss of an enterprise. They are not readily understandable to interested parties like creditors, shareholders, investors etc. Thus, various techniques are employed for analysing and interpreting the financial statements. Techniques of analysis of financial statements are mainly classified into three categories :

1. Cross-sectional analysis –

It is also known as inter firm comparison. This analysis helps inanalysing financial characteristics of an enterprise with financialcharacteristics of another similar enterprise in that accounting period.For example, if company A has earned 15% profit on capital invested.This does not say whether it is adequate or not. If we analyse furtherand find that a similar company has earned 16% during the sameperiod, then only we can make a conclusion that company B is better.Thus, it turns into a meaningful analysis.

2. Time series analysis –

It is also called as intra-firm comparison. According to this method,the relationship between different items of financial statement isestablished, comparisons are made and results obtained. The basis ofcomparison may be :

Comparison of the financial statements of different years of the same business unit.

Comparison of financial statement of a particular year of different business units.

3. Cross-sectional cum time series analysis –

This analysis is intended to compare the financial characteristics of twoor more enterprises for a defined accounting period. It is possible toextend such a comparison over the year. This approach is most effectivein analysing of financial statements.

The analysis and interpretation of financial statements is used to determine the financial positon. A number of tools or methods or devices are used to study the relationship between financial statements. However, the following are the important tools which are commonly used for analysing and interpreting financial statements :Internal analysis of financial statement Page 5

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Comparative financial statements Common size statements Trend analysis Ratio analysis Funds flow analysis Cash flow analysis

PARTIES INTERESTED :

The main parties interested in analysis of financial statement are:

Investors Management Trade unions Lenders Trade creditors Employees The authorities Government Stock exchange Researchers

Thus, analysis of financial statements means establishing meaningful, relationship between various items of the two financial statements i.e. income statement and position statement.

INTERNAL ANALYSIS


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Methods of customer analysis may be divided into two general categories:

Internal and Comparative.

Internal analysis uses figures from the financial statements of any one date or period to gain an understanding of the customer.

Comparative analysis may be used to determine trends when two or more successive sets of figures are reviewed, or may be used to evaluate a given company's financial statement against industry standards.

These methods may be used separately or in combination. They are part of the tools that enable experienced credit professionals to reach a credit decision.

Financial statements should be spread and analyzed, with appropriate ratios and flows calculated as an aid in the customer evaluation. Statements received directly from the customer should be promptly acknowledged.

As an important first step in internal analysis, the financial statement should be examined for validity and general correctness. Estimates have sometimes been mistaken for accurate figures, vague terminology is often overlooked, unauthorized signatures are accepted and the mere notation of an auditor's name has, at times, been taken as indication of a proper audit. In some instance, neglect of this phase of the customer examination has proved costly to creditors.

After the statement has been accepted as valid and reasonably accurate, ratios should be calculated and the figures analyzed. Internal analysis calls for an examination of items within a single financial statement for the purpose of judging their significance in relation to the capital of the company, its method of operation and conditions prevailing within the industry. When sales, profits or other operating details are not Internal analysis of financial statement Page 7

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available, emphasis must be placed on internal analysis of the balance sheet. The major tools for internal analysis are balance sheet ratios and a working knowledge of the line of business including the method of operation and seasonal influences.

Ratios are mathematical aids for appraisal and comparison of financial statements. They are used to supplement dollar amount inspection, to examine inter-item relationships and to compare a specific company's performance against its industry standard.

The use of ratios reduces the influence of dollar size on analysis since these comparisons are expressed as a percentage, fraction, decimal or rates of turnover. The number of ratios that can be developed from the balance sheet and income statement is limited only by the combinations that could be made of the items appearing in both schedules. The type of operation represented by the account and the nature of the risk has an important bearing on what ratios are to be computed and studied.

In order to analyse the internals of the financial health of a company, two companies from the I.T. sector have been chosen and compared based on the performance of past two years 2008-2009 and 2009-2010:

Wipro Technologies Ltd. Tata Consultancy Service


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WIPRO

INTRODUCTION TO THE COMPANY

Wipro Limited (Wipro), together with its subsidiaries and associates (collectively, the company or the group) is a leading India based provider of IT Services and Products, including Business Process Outsourcing (BPO) Services, globally. Further,Wipro has other business such as India and AsiaPac IT Services and products and Consumer Care and Lighting. Wipro is headquartered in Bangalore, India.Wipro Technologies is a global services provider delivering technology-driven business solutions that meet the strategic objectives clients. Wipro has 40+ ‘Centers of Excellence’ that create solutions around specific needs of industries. Wipro delivers unmatched business value to customers through a combination of process excellence, quality frameworks and service delivery innovation. Wipro is the World's first CMMi Level 5 certified software services company and the first outside USA to receive the IEEE Software Process Award.

Wipro Is a $3.5 billion Global company in Information Technology Services, R&D Services, Business process outsourcing. Team wipro is 75,000 Strong from 40 nationalities and growing. Wipro is present across 29 counries,36 Development canters, Investors across 24 countries.

1.Largest third party R&D Service provider in the world.

2. Largest Indian Technology Infrastructure management service

provider.

3. A vendor of choice in the middle east.

4. Among the top 3 Indian BPO Service provider by Revenue .


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5. Among the top 2 Domestic IT Services companies in India.

GROUP COMPANIES Wipro Infrastructure Engineering Ltd.

Wipro Inc.Mango Pte Ltd.Wipro Japan KK.Wipro Shanghai Ltd.Wipro Trademarks Holding Ltd.Wipro Travel Services Ltd.Wipro Cyprus Private Ltd.Wipro Consumer Care Ltd.Wipro Health Care Ltd.Wipro Chandrika Ltd.(a)Wipro Holdings (Mauritius) Ltd.Wipro Australia pty Ltd.WMNETSERV Ltd.(a)Quantech Global Service Ltd.3D Network Pte Ltd.Planet PSG Pte Ltd.Spectramind Inc.

TATA CONSULTANCY SERVICES LTD.


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INTRODUCTION TO THE COMPANY

Tata Consultancy Services (TCS) is a Software services consulting company headquartered in Mumbai, India. TCS is the largest provider of information technology and business process outsourcing services in Asia. TCS has offices in 42 countries with more than 142 branches across the globe. The company is listed on the National Stock Exchange and Bombay Stock Exchange of India.

TCS is a flagship subsidiary of one of India's largest and oldest conglomerate company, the Tata Group, which has interests in areas such as energy, telecommunications, financial services, manufacturing, chemicals, engineering, materials, government and healthcare.

Tata Consultancy Services was established in the year 1968 and is a pioneer in Information Technology Outsourcing and Management Industry. Despite unfavourable government regulations the company succeeded in establishing the Indian IT Industry.

It began as the "Tata Computer Centre", for the company Tata Group whose main business was to provide computer services to other group companies. F C Kohli was the first general manager. JRD Tata was the first chairman, followed by Nani Palkhivala.

One of TCS' first assignments was to provide punched card services to a sister concern, Tata Steel (then TISCO). It later bagged the country's first software project, the Inter-Branch Reconciliation System (IBRS) for the Central Bank of India[5]. It also provided bureau services to Unit Trust of India, thus becoming one of the first companies to offer BPO services.

COMPARATIVE STATEMENT ANALYSIS


http://en.wikipedia.org/wiki/Business_process_outsourcing

http://en.wikipedia.org/wiki/Unit_Trust_of_India

http://en.wikipedia.org/wiki/Unit_Trust_of_India

http://en.wikipedia.org/wiki/Central_Bank_of_India

http://en.wikipedia.org/wiki/Tata_Steel

http://en.wikipedia.org/wiki/Punched_card

http://en.wikipedia.org/wiki/Nani_Palkhivala

http://en.wikipedia.org/wiki/JRD_Tata

http://en.wikipedia.org/wiki/F_C_Kohli

http://en.wikipedia.org/wiki/Tata_Group

http://en.wikipedia.org/wiki/Tata_Group

http://en.wikipedia.org/wiki/Conglomerate_(company)

http://en.wikipedia.org/wiki/Bombay_Stock_Exchange

http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India

http://en.wikipedia.org/wiki/Business_process_outsourcing

http://en.wikipedia.org/wiki/Information_technology

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Mumbai

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Comparative statements are financial statements that cover a different time frame, but are formatted in a manner that makes comparing line items from one period to those of a different period an easy process. This quality means that the comparative statement is a financial statement that lends itself well to the process of comparative analysis. Many companies make use of standardized formats in accounting functions that make the generation of a comparative statement quick and easy.

The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the statement, it is a simple process to compare the gross sales of a given product or all products of the company with the gross sales generated in a previous month, quarter, or year. Comparing generated revenue from one period to a different period can add another dimension to analyzing the effectiveness of the sales effort, as the process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold.

Along with being an excellent way to broaden the understanding of the success of the sales effort, a comparative statement can also help address changes in production costs. By comparing line items that catalogue the expense for raw materials in one quarter with another quarter where the number of units produced is similar can make it possible to spot trends in expense increases, and thus help isolate the origin of those increases. This type of data can prove helpful to allowing the company to find raw materials from another source before the increased price for materials cuts into the overall profitability of the company.

A comparative statement can be helpful for just about any organization that has to deal with finances in some manner. Even non-profit organizations can use the comparative statement method to ascertain trends in annual fund raising efforts. By making use of the comparative statement for the most recent effort and comparing the figures with those of the previous year’s event, it is possible to determine where expenses increased or decreased, and provide some insight in how to plan the following year’s event.


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COMPARATIVE INCOME STATEMENT:

WIPRO:

change in

2009 2010 amount %

gross sales21,612.80 23,006.30

1,393.50 6.448

less excise duty 105.5 84.3 -21.20 -20.095

net sales 21,507.30 22,922.001,414.70 6.578

Less Cogsopening stock

Add Purchases 3,438.80 4,140.40 701.60 20.402Add Wages 9,249.80 9,062.80 -187.00 -2.022Add power and fuel cost 154 141.4 -12.60 -8.182Add Patenets 230.22 200.2 -30.02 -13.040Add commision on purchases 108.65 345.23 236.58 217.745Less closing stock 520.23 545.43 25.20 4.844

cost of sales 12,661.24 13,344.60 683.36 5.397gross profit 8,846.06 9,577.40 731.34 8.267

Less operating expenses1 Administration

Salaries 1200.2 1183.3 -16.90 -1.408rent and rates 2010.9 2005.5 -5.40 -0.269total administrative exp 3211.1 3188.8 -22.30 -0.694

2 selling and distribution expensescarriage outwards 489.5 500.4 10.90 2.227delivery expenses 340.7 376.2 35.50 10.420advertisement exp 692.8 598.5 -94.30 -13.611total s/d exp 1,523.00 1,475.10 -47.90 -3.145total operating expenses

Ebit 4,278.30 6,376.802,098.50 49.050

Less interest on loan -480.40 875.301,355.70 -282.202

operating net profit 4,758.70 5,501.50 742.80 15.609Add non operating income

interest received 220.8 1009.5 788.70 357.201Less non operating expenses 0.00

loss on sale of asset 898 242.6 -655.40 -72.984

npB D&T 4,081.50 6,268.402,186.90 53.581

Less Depreciation 533.6 579.6 46.00 8.621


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Npbt 3,547.90 5,688.802,140.90 60.343

Less Tax 574.1 790.8 216.70 37.746

Npat 2,973.80 4,898.001,924.20 64.705

COMPARATIVE BALANCE SHEET:

WIPRO

SOURCES OF FUNDS: 2009 2010 Amount (change)

% (change)

1 Owned Funds:

Equity share capital 293 293.6 0.6 0.20478

Add general reserve 12,220.50 17,396.80 5176.3 42.3575

Add profit & loss a/c 2,973.80 4,898.00 1924.2 64.7051Less preliminary expenses 155.56 172.33 16.77 10.7804

Net Worth 15,331.74 22,416.07 7084.33 46.2072 Borrowed funds: 0

secured: mortgage loan (secured on plant) 2,197.16 806.33 -1390.8 -63.301

total loan funds 0

TOTAL CAPITAL EMPLOYED 17,528.90 23,222.40 5693.5 32.4806

APPLICATION OF FUNDS:1 FIXED ASSETS:

Land and building 1059.867 1218.767 158.9 14.9924

plant and machinery 1168.432 1342.333 173.901 14.8833

furniture and fittings 951.301 1095.2 143.899 15.1265

NET FIXED ASSETS 3,179.60 3,656.30 476.7 14.9925

2 INVESTMENTS 6,895.30 8,966.50 2071.2 30.03793 WORKING CAPITAL

CURRENT ASSETS: Quick assets:

sundry debtors 4,446.40 4,754.70 308.3 6.9337

Cash 1,902.10 1,938.30 36.2 1.90316

bills receivable 360.60 2,552.40 2191.8 607.82

Total quick assets 6,348.50 6,693.00 344.5 5.42648

Non-quick assets:


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Stock 459.6 606.9 147.3 32.0496

Total non quick assets 459.6 606.9 147.3 32.0496

Total current assets 13,517.20 16,545.30 3028.1 22.4018Less CURRENT LIABILITIES:

Quick liabilities:

provision for tax 1,810.70 2,230.80 420.1 23.201

Creditors 1,892.22 799.4 -1092.8 -57.753

bills payable 1,164.98 201.6 -963.38 -82.695

Total quick liabilities 4,867.90 3,231.80 -1636.1 -33.61

Non-quick liabilities:

Bank overdraft 2,507.10 3,726.00 1218.9 48.6179

Total non quick liabilities 2,507.10 3,726.00 1218.9 48.6179

Total current liabilities 7,375.00 6,936.80 -438.2 -5.9417

WORKING CAPITAL (CA-CL) 6,142.20 9,608.50 3466.3 56.4342

TOTAL NET ASSETS OWNED 17,528.90 23,222.40 5693.5 32.4806

INTERPRETATION:

1. Wipro ended the financial year 2009-10 on a strong note and perform better than the year 2008-2009 despite challenging economic conditions as can be seen from the balance sheet and income statements. The first two quarters result was affected due to recession which had their investments in some core markets coming to a standstill. However the result for the second quarter was much more positive.

2. Total funds available has increased by 32% which is due to an increase in net worth of the company by Rs. 7084 and also increase in borrowed funds by Rs. 5693.


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3. The gross profit has increased by 8% which is due to an increase in sales by 6% and is mainly due to a sharp decrease in the excise duty (20%).

4. Investments have increased by 30% as Wipro continues to invest strongly in its customers in mature markets of US and Europe. These investments are directed in the areas of domain and technology innovation as well as business process innovation.mes, we have been unflinching in our commitment to building

5. Non-linear initiatives (which focus on profitable growth in revenues without proportionate increase in people and through automation and standardized shared service platforms) contributed to 7% of the revenue earned.

6. During the year 2009-2010, net profit increased. However, there was an increase in depreciation and tax also.

7. The application infrastructure cost was reduced by 50% for a large energy major by integrating a hybrid cloud solution.


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COMPARATIVE INCOME STATEMENT:

TCS:

Particulars 2009 2010Change (in amount)

Change (in %)

Gross sales 22,404.00 23,044.84 640.84 2.860less excise duty 2.08 0.39 -1.69 -81.250

net sales 22,401.92 23,044.45 642.53 2.868Less Cogs

opening stockAdd Purchases 53.67 23.75 -29.92 -55.748Add Wages 7,370.09 7,882.43 512.34 6.952Add power and fuel cost 164.34 183.62 19.28 11.732Add Patenets 300.44 323.22 22.78 7.582Add commision on purchases 118.98 136.86 17.88 15.028Less closing stock 520.23 545.43 25.20 4.844

cost of sales 7,487.29 8,004.45 517.16 6.907gross profit 14,914.63 15,040.00 125.37 0.841


Salaries 8002.33 8232.93 230.60 2.882rent and rates 2446.7 2345.58 -101.12 -4.133total administrative exp 10449.03 10578.51 129.48 1.239

2 selling and distribution expensescarriage outwards 297.3 371.96 74.66 25.113delivery expenses 220.12 230.31 10.19 4.629advertisement exp 700.99 665.76 -35.23 -5.026total s/d exp 1,218.41 1,268.03 49.62 4.073total operating expensesEbit 5,564.59 6,849.27 1,284.68 23.087

Less interest on loan 456.24 182.10 -274.14 -60.087operating net profit 6,020.83 6,667.17 646.34 10.735

Add non operating incomeinterest received 283.2 1184.43 901.23 318.231

Lessnon operating expensesloss on sale of asset 782 238.43 -543.57 -69.510npB D&T 5,557.15 6,839.73 1,282.58 23.080

Less Depreciation 417.46 469.35 51.89 12.430Npbt 5,139.69 6,370.38 1,230.69 23.945

Less Tax 340.37 737.89 397.52 116.791Npat 4,696.21 5,618.51 922.30 19.639


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COMPARATIVE BALANCE SHEET:

TCS

2009 2010change in (amount)

Change in (%)

SOURCES OF FUNDS: 1 Owned Funds:

Equity share capital 197.86 295.72 97.86 49.46Add general reserve 13,248.39 14,820.90 1572.51 11.87Add profit & loss a/c 4,696.21 5,618.51 922.3 19.64Less preliminary expenses 34.42 93.75 59.325 172.36

Net Worth 18,108.04 20,641.39 2533.345 13.992 Borrowed funds:

secured: mortgage loan (secured on plant) -4621.42 -5,489.03total loan fundsTOTAL CAPITAL EMPLOYED 13,486.62 15,152.36 1665.74 12.35


Land and building 982.44 982.44 0 0.00plant and machinery 962 984.22 22.22 2.31furniture and fittings 724.64 793.86 69.22 9.55NET FIXED ASSETS 2,669.08 2,760.52 91.44 3.43

2 INVESTMENTS 6,895.30 8,966.50 2071.2 30.043 WORKING CAPITAL

CURRENT ASSETS: Quick assets:sundry debtors 3,717.73 3,332.30 -385.43 -10.37Cash 479.93 212.31 -267.62 -55.76bills receivable 342.52 1,853.67 1511.15 441.19Total quick assets 4,540.18 5,398.28 858.1 18.90Non-quick assets:Stock 16.95 6.78 -10.17 -60.00Total non quick assets 16.95 6.78 -10.17 -60.00Total current assets 4,557.13 5,405.06 847.93 18.61

Less CURRENT LIABILITIES:Quick liabilities:provision for tax 1,450.23 3,926.61 2476.38 170.76Creditors 1,590.24 1143.22 -447.02 -28.11bills payable 1,164.98 681.72 -483.26 -41.48


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Total quick liabilities 4,205.45 5,751.55 1546.1 36.76Non-quick liabilities:Bank overdraft 1,125.33 3,183.85 2058.52 182.93Total non quick liabilities 1,125.33 3,183.85 2058.52 182.93Total current liabilities 634.89 3,425.34 2790.45 439.52WORKING CAPITAL (CA-CL) 3,922.24 1,979.72 -1942.52 -49.53TOTAL NET ASSETS OWNED 13,486.62 15,152.36 1665.74 12.35

INTERPRETATION:

1. TCS ended on a positive note in 2009-2010 and made a progress of 19% with respect to the profit earned compared to the financial year 2008-2009.

2. On an Unconsolidated basis, in 2009-10 TCS revenues were at Rs.23044.45 crore, a growth of 2.86% over 2008-09. Operating margin (Profit before taxes excluding other income) 23% and net margin grew 342 to 23.95%.unflinching in our commitment to building.

3. The revenues of the company increased due to product business (contributing 33% of the revenue – grew by 23.3% during the year), new services (25%) like BPO, Infrastructure, Assurance and Asset Leveraged Solution.

4. The Company’s business grew even in those sectors affected by the economic meltdown, mainly because the customers appreciated the Company’s value proposition. Banking, Financial Services, Retail, Life Sciences & Health Care and Government sectors registered positive growth in FY10. However, sectors like Manufacturing, Telecom, Hi-Tech and Insurance all declined on an annual basis. The Company sees improvement in its order position in these industry segments as well as growth in almost all geographical markets.


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5. The company’s PAT increased significantly compared to the previous year by 19% due to strategic acquisitions.

COMMON SIZE STATEMENT


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The common-size statement is a financial document that is often utilized as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and other financial statements, the common-size statement does not reflect exact figures for each line item. Instead, the structure of the common size statement uses a common base figure, and assigns a percentage of that figure to each line item or category reflected on the document.

A company may choose to utilize financial statements of this type to present a quick snapshot of how much of the company’s collected or generated revenue is going toward each operational function within the organization. The use of a common-size statement can make it possible to quickly identify areas that may be utilizing more of the operating capital than is practical at the time, and allow budgetary changes to be implemented to correct the situation.

The common size statement can also be a helpful tool in comparing the financial structures and operation strategies of two different companies. The use of percentages in the common size statements removes the issue of which company generates more revenue, and brings the focus on how the revenue is utilized within each of the two businesses. Often, the use of a common-size statement in this manner can help to identify areas where each company is utilizing resources efficiently, as well as areas where there is room for improvement.

Common-size statements can be prepared for any review period desired. Companies that choose to make use of financial statements of this type may choose to utilize this format for quarterly, semi-annual, or annual reviews. When there is concern about operational costs, the common-size statement may be prepared on a more frequent basis, such as monthly. Because the common-size statement is very easy to read and does not necessarily contain information that would be considered proprietary, the format can often be employed as part of general information that is released to the public.

COMMON SIZE INCOME STATEMENT


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WIPRO:

PARTICULARS2009 (Amount)

2009 (%)

2010 (Amount) 2010 (%)

Net sales 21,507.30 100 22,922.00 100Less Cogs

opening stockAdd Purchases 3,438.80 15.99 4,140.40 18.063Add Wages 9,249.80 43.01 9,062.80 39.53756Add power and fuel cost 154 0.72 141.4 0.616875Add Patenets 230.22 1.07 200.2 0.873397Add commision on purchases 108.65 0.51 345.23 1.506108Less closing stock 520.23 2.42 545.43 2.379504

cost of sales 12,661.24 58.87 13,344.60 58.21743gross profit 8,846.06 41.13 9,577.40 41.78257


total administrative exp 3211.114.930279 3188.8 13.91153

2 selling and distribution expensestotal s/d exp 1,523.00 7.08 1,475.10 6.435302total operating expensesEbit 4,278.30 19.89 6,376.80 27.81956

Less interest on loan -480.40 -2.23 875.30 3.818602operating net profit 4,758.70 22.13 5,501.50 24.00096

Add non operating income

interest received 220.81.0266282 1009.5 4.404066

Less non operating expenses

loss on sale of asset 8984.1753265 242.6 1.058372

NpB D&T 4,081.50 18.98 6,268.40 27.34665Less Depreciation 533.6 2.481018 579.6 2.528575

Npbt 3,547.90 16.50 5,688.80 24.81808Less Tax 574.1 2.669326 790.8 3.449961

Npat 2,973.80 13.83 4,898.00 21.36812


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COMMON SIZE BALANCE SHEET

WIPRO:

2009 % 2010 %SOURCES OF FUNDS:

1 Owned Funds: Equity share capital 293 1.671525 293.6 1.264297

Add general reserve 12,220.50 69.72 17,396.80 74.91388Add profit & loss a/c 2,973.80 16.97 4,898.00 21.0917

Less preliminary expenses 155.560.8874487 172.33 0.74

Net Worth 15,331.74 87.47 22,416.07 96.527792 Borrowed funds:

secured: mortgage loan (secured on plant) 2,197.16 12.53 806.33 3.472208total loan fundsTOTAL CAPITAL EMPLOYED 17,528.90 100.00 23,222.40 100


Land and building 1059.8676.0463977 1218.767 5.248239

plant and machinery 1168.4326.6657463 1342.333 5.780337

furniture and fittings 951.3015.4270433 1095.2 4.716136

NET FIXED ASSETS 3,179.60 18.14 3,656.30 15.744712 INVESTMENTS 6,895.30 39.34 8,966.50 38.611433 WORKING CAPITAL

CURRENT ASSETS: Quick assets:sundry debtors 4,446.40 25.37 4,754.70 20.47463Cash 1,902.10 10.85 1,938.30 8.346683bills receivable 360.60 2.06 2,552.40 10.99111Total quick assets 6,348.50 36.22 6,693.00 28.82131Non-quick assets:Stock 459.6 2.621956 606.9 2.613425Total non quick assets 459.6 606.9Total current assets 13,517.20 77.11 16,545.30 71.25

Less CURRENT LIABILITIES:Quick liabilities:provision for tax 1,810.70 10.33 2,230.80 9.606242Creditors 1,892.22 10.79 799.4 3.442366


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bills payable 1,164.98 6.65 201.6 0.868127Total quick liabilities 4,867.90 27.77 3,231.80 13.91674Non-quick liabilities:Bank overdraft 2,507.10 14.30 3,726.00 16.04485Total non quick liabilities 2,507.10 3,726.00Total current liabilities 7,375.00 42.07 6,936.80 29.87116WORKING CAPITAL (CA-CL) 6,142.20 35.04 9,608.50 41.376TOTAL NET ASSETS OWNED 17,528.90 100.00 23,222.40 100

INTERPRETATION:

1. The total capital employed increased sharply in 2009-2010.2. As a result the working capital increased. It was 35% in 2008-2009

and is 41% presently in 2009-20103. The current liabilities decreased.4. However, the gross profit was almost the same in both the years

which is 41%


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COMMON SIZE INCOME STATEMENT

TCS:

PARTICULARS 2009 % 2010 %net sales 22,401.92 100.00 23,044.45 100

Less Cogsopening stock

Add Purchases 53.67 0.239578 23.75 0.103062Add Wages 7,370.09 32.90 7,882.43 34.20533Add power and fuel cost 164.34 0.733598 183.62 0.796808Add Patenets 300.44 1.341135 323.22 1.402594Add commision on purchases 118.98 0.5311152 136.86 0.593896Less closing stock 520.23 2.3222563 545.43 2.366861

cost of sales 7,487.29 33.42 8,004.45 34.73483gross profit 14,914.63 66.58 15,040.00 65.26517


total administrative exp 10449.03 46.643457 10578.51 45.904812 selling and distribution expenses

total s/d exp 1,218.41 5.44 1,268.03 5.50254total operating expensesEbit 5,564.59 24.84 6,849.27 29.72199

Sless interest on loan 456.24 2.04 182.10 0.790212operating net profit 6,020.83 26.88 6,667.17 28.93178

Add non operating incomeinterest received 283.2 1.2641774 1184.43 5.139763

Less non operating expensesloss on sale of asset 782 3.4907722 238.43 1.034653npB D&T 5,557.15 24.81 6,839.73 29.6806

Less Depreciation 417.46 1.863501 469.35 2.036716Npbt 5,139.69 22.94 6,370.38 27.64388

Less Tax 340.37 1.519379 737.89 3.202029Npat 4,696.21 20.96 5,618.51 24.38119


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COMMON SIZE BALANCE SHEET

TCSPARTICULARS 2009 % 2010 %SOURCES OF FUNDS:

1 Owned Funds: Equity share capital 197.86 1.467084 295.72 1.951643

Add general reserve 13,248.39 98.23 14,820.90 97.81249Add profit & loss a/c 4,696.21 34.82 5,618.51 37.0801

Less preliminary expenses 34.420.2552159 93.75 0.62

Net Worth 18,108.04 134.27 20,641.39 136.22552 Borrowed funds:

secured: mortgage loan (secured on plant) -4621.42 -34.2667 -5,489.03 -36.2256total loan fundsTOTAL CAPITAL EMPLOYED 13,486.62 100.00 15,152.36 100


Land and building 982.447.2845531 982.44 6.483742

plant and machinery 9627.1329955 984.22 6.49549

furniture and fittings 724.64 5.373029 793.86 5.239184NET FIXED ASSETS 2,669.08 19.79 2,760.52 18.21842

2 INVESTMENTS 6,895.30 51.13 8,966.50 59.17563 WORKING CAPITAL

CURRENT ASSETS: Quick assets:sundry debtors 3,717.73 27.57 3,332.30 21.99195Cash 479.93 3.558564 212.31 1.401168bills receivable 342.52 2.54 1,853.67 12.23354Total quick assets 4,540.18 33.66 5,398.28 35.62666Non-quick assets:Stock 16.95 0.12568 6.78 0.044746Total non quick assets 16.95 6.78Total current assets 4,557.13 33.79 5,405.06 35.67

Less CURRENT LIABILITIES:Quick liabilities:provision for tax 1,450.23 10.75 3,926.61 25.91418Creditors 1,590.24 11.79 1143.22 7.544831bills payable 1,164.98 8.64 681.72 4.499101Total quick liabilities 4,205.45 31.18 5,751.55 37.95811


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Non-quick liabilities:Bank overdraft 1,125.33 8.34 3,183.85 21.01224Total non quick liabilities 1,125.33 3,183.85Total current liabilities 634.89 4.71 3,425.34 22.60598WORKING CAPITAL (CA-CL) 3,922.24 29.08 1,979.72 13.06542TOTAL NET ASSETS OWNED 13,486.62 100.00 15,152.36 100.00

INTERPRETATION:

1. The working capital of the company decreased in the succeeding year.

2. The gross profit fell down a bit from 66% to 65% but is not very significant.


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CASH FLOW STATEMENT

Cash flow statement is prepared to explain the cash movements between two points of time. A cash flow statement shows inflow and outflow of cash including bank balances and cash equivalents of an enterprise during a particular period.

A cash flow statement is used for making short term future plans which will assist the management to assess their ability to meet immediate requirements like paying creditors, paying dividends etc.Cash flow statement is used to answer questions such as “How did this company get into so much trouble?” Unfortunately, the vast majority of time the answer is, “Because the company lacked relatively simple cash-flow management techniques.”Hence cash flow is an important determinant in the financial health of the company.

UTILITY OF CASH FLOW:

Analysing the actual position in the past year.

Indicates the cash profit generated due to the operating, investing and financing activities.

Indicates opening and closing cash and bank balances.

It supplements the income statement and balance sheet of the firm.

It can be prepared from the projected final accounts which can later be used as a controlling device.


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CASH FLOW STATEMENT

WIPRO:

Mar ' 10 Mar ' 09

Profit before tax 5,688.80 3,547.90

Net cash flow-operating activity 4,477.40 4,344.50

Net cash used in investing activity -3,064.60 -3,662.70

Net cash used in fin. Activity -96.2 -70.7

Net increase/decrease in cash and equivalent 1,316.60 611.1

Cash and equivalents at the beginning of the year 4,347.70 3,798.10

Cash and equivalents at the end of the year 5,664.30 4,409.20

INTERPRETATION:

1. As compared to 2008-2009, the net profit before calculating tax of Wipro was greater.

2. The information obtained from Cash from investing accounts for cash used to make new investments, as well as proceeds gained from previous investments. In case of Wipro, this number in 2009 was -3662.60 and increased in 2010 which summed up to -3662.7, which shows the company spent significant cash investing in projects it hopes will lead to future growth.


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CASH FLOW STATEMENT:

TCS

March ‘09 March ‘10

Net Profit Before Tax 5139.68 6370.38

Net Cash From Operating Activities 4874.12 6264.74

Net Cash (used in)/fromInvesting Activities -3162.2 -4556.6

Net Cash (used in)/from Financing Activities -1588.3 -1969.7

Net (decrease)/increase In Cash and Cash Equivalents 123.65 -261.55

Opening Cash & Cash Equivalents 417 554.83

Closing Cash & Cash Equivalents 540.65 293.28

INTERPRETATION:

1. The net profit before tax for TCS was 5139.68 in 2008-2009 and increased to 6370.38 in 2009-2010.

2. The company increased its cash from operating activities and investing activities significantly.


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RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables.

Significance or Importance of ratio analysis:

1. It helps in evaluating the firms performance

With the help of ratio analysis conclusion can be drawn regarding several aspects such as financial health, profitability and operational efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the firm’s assets correctly, to increase the investor’s wealth. It ensures a fair return to its owners and secures optimum utilization of firms assets

2. It helps in inter-firm comparison:

Ratio analysis helps in inter-firm comparison by providing necessary data. An interfirm comparison indicates relative position.It provides the relevant data for the comparison of the performance of different departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be intiated immediately to bring them in line.

3. It simplifies financial statement:


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The information given in the basic financial statements serves no useful Purpose unless it s interrupted and analyzed in some comparable terms. The ratio analysis is one of the tools in the hands of those who want to know something more from the financial statements in the simplified manner.

4. It helps in determining the financial position of the concern:

Ratio analysis facilitates the management to know whether the firms financial position is improving or deteriorating or is constant over the years by setting a trend with the help of ratios The analysis with the help of ratio analysis can know the direction of the trend of strategic ratio may help the management in the task of planning, forecasting and controlling.

5. It is helpful in budgeting and forecasting:

Accounting ratios provide a reliable data, which can be compared, studied And analyzed.These ratios provide sound footing for future prospectus. The ratios can also serve as a basis for preparing budgeting future line of action.

6. Liquidity position:

With help of ratio analysis conclusions can be drawn regarding the Liquidity position of a firm. The liquidity positon of a firm would be satisfactory if it is able to meet its current obligation when they become due. The ability to met short term liabilities is reflected in the liquidity ratio of a firm.


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7. Long term solvency:

Ratio analysis is equally for assessing the long term financial ability of the Firm. The long term solvency s measured by the leverage or capital structure and profitability ratio which shows the earning power and operating efficiency, Solvency ratio shows relationship between total liability and total assets.

8. Operating efficieny:

Yet another dimension of usefulness or ratio analysis, relevant from the View point of management is that it throws light on the degree efficiency in the various activity ratios measures this kind of operational efficiency.

Classification of ratios:

Different ratios are used for different purpose these ratios can be grouped into various classes according to the financial activity. Ratios are classified into four broad categories.

1. Liquidity Ratio 2. Leverage Ratio 3. Profitability Ratio 4. Activity Ratio


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1. CURRENT RATIO

The current ratio is the ratio of total current assets to total current liabilities it is calculated by dividing current assets by current liabilities. Current assets include cash an bank balances, marketable securities, inventory of raw materials, semi-finished and finished goods, bills receivable and prepaid expenses. The current liabilities which are short- term obligations to be met it consist of trade creditors, bills payable, bank credit, provision for taxation and outstanding expenses.

Current ratio = Current assets / Current liabilities

WIPRO:

for the year 2008-2009 = 1.10

for the year 2009 -2010 = 1.34

TCS:

for the year 2008-2009 = 1.83

for the year 2009 -2010 = 1.49

Interpretation:

WIPRO:

The current ratio for the year 2008-2009 is 1.10:1.An ideal ratio is the one ranging anywhere between 1: 1 to 2:1. When compared to the standard ratio the company shows perfect short term liquidity efficiency at the same time holding sufficient current assets means efficient use of resources. However the company must aim at achieving a current ratio close to 2.The ratio for the year 2004-2005 is 1.34:1 which is still better than the financial year 2008-09.

The current ratio in 2009-10 increased due to an increase in sundry debtors ( 7%) and cash.


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TCS:

The current ratio for the year 2008-2009 is 1.83:1 which is almost equal to the standard ratio 2:1.Hence the company is faring well. Compared to standard ratio 2:1 this ratio is lower in 2009-2010 which shows low short term liquidity efficiency at the same time holding less than sufficient current assets means efficient use of resources but at the risk of low liquidity. The ratio decreased over subsequent years due to increase in liabilities and provisions.

2. QUICK RATIO This ratio is designed to show the amount of cash available to meet immediate payments. It is obtained by dividing the quick assets by quick liabilities. Quick Assets are obtained by deducting stocks from current assets. Quick liabilities are obtained by deducting bank over draft from current liabilities.

Quick ratio = quick assets / quick liabilities

WIPRO:

for the year 2008-2009 = 1.76

for the year 2009 -2010 = 2.29

TCS:

for the year 2008-2009 = 1.83

for the year 2009 -2010 = 1.48

Interpretation

WIPRO


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The Standard Ratio is 1:1. However, Company’s Quick Assets are more than Quick Liabilities in both the years. In 2009-10 the ratio is high because of high in bank and cash balance.So since the quick ratio is exceeding 1, the firm is in position to meet its immediate obligation in all the years.

TCS

Quick ratio is decreased because the increase in quick assets is less proportionate to the increased quick liabilities.

3. OPERATING PROFIT MARGIN

This ratio shows the relation between Cost of Goods Sold + Operating Expenses and Net Sales. It shows the efficiency of the company in managing the operating costs base with respect to Sales. The higher the ratio, the less will be the margin available to proprietors.

Operating Profit Ratio = (COGS + Operating expenses) X 100 / Sales

WIPRO:

For the year 2008-2009 = 22.12For the year 2009-2010 = 24

TCS:

For the year 2008-2009 = 26.87 For the year 2009- 2010 = 28.93

Interpretation

WIPRO


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The operating profit of Wipro over the years has been increasing and it is close to the ideal ratio which means that the business is able to stand in the market.

TCS

The operating profit ratio of TCS is also good and is better than Wipro which means that the company is making enough profits. The expenses incurred to earn profit were less in 2009- 2010 compared to 2008-2009 which reflects in the operating profit as it increases from 26.87 to 28.93.

4. TOTAL ASSET TURNOVER The amounts invested in business are invested in all assets jointly and sales are affected through them to earn profits. Thus it is the ratio of Sales to Total Assets. .It is the ratio which measures the efficiency with which assets were turned over a period.

Total Asset Turnover Ratio = Sales / Total Assets

WIPRO:

For the year 2008-2009 = 1.24For the year 2009-2010 = 0.99

TCS:


Interpretation

WIPRO

The total asset turnover in 2008-2009 is 1.24 and is decreasing in the year 2009-2010 which implies lesser sales have been generated using the assets. It shows inefficient management of Wipro as it is a volume indicator of measure of efficiency from time to time.


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TCS

Assets turnover is 5.15 for TCS in 2008-2009 which is very good and implies that the firm is efficient in the utilisation of its assets.

5. INVENTORY TURNOVER RATIO

Inventory Turnover Ratio: The no. of times the average stock is turned over during the year is known as stock turnover ratio.

Inventory Turnover Ratio = COGS /Average stock

WIPRO: For the year 2008-2009 = 56.15For the year 2009-2010 = 49.40

TCS

For the year 2008-2009 =1321.77For the year 2009-2010 = 3398.94

Interpretation

WIPRO

From the above calculation we can say that the ratio is decreasing over the two years. It means inventory is not speedly converted in to sales. So that it is bad for the company. The ratio is decreasing from 56.15 to 49.40 and hence the company must devise a systematic operational plan for inventory control.

TCS


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The ratios of TCS are very high and increasing enormously over years which indicate that the operating efficiency of TCS is positive. Since inventory that remains in place produces no revenue and increases the cost associated with maintaining those inventories, Higher inventory turnover ratio is desirable which is certain in case of TCS which shows an increase from 1321.77 to 3398.94 over the years 2008-2009 t0 2009-2010.

6. DEBTOR TURNOVER RATIO

Debtor turnover ratio: The debtor turnovers suggest the no. of times the amount of credit sale is collected during the year.

Debtor’s Turnover Ratio = Sales / Average Debtors

WIPRO:

For the year 2008 - 2009 = 5.32For the year 2009 - 2010 = 4.98

TCS:

For the year 2008 -2009 = 6.00For the year 2009 -2010 = 6.54

Interpretation

WIPRO

Debtor turnover indicates how quickly the company can collect its credit sales revenue. Here the ratio is continuously decreasing, so that the company’s collection of credit sales is efficient. Management has improved its collection period every year so it shows that the


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management have an ability to collect its money from his debtors. So they can invest that money on Assets, HRD and other investments.

It implies that Wipro can collect money from its debtors in 4.98 weeks in 2009-2010 as compared to 5.32 in 2008-2009.

TCS

As for TCS, it took 6 weeks for TCS to get the payment from the debtors in 2008-2009 as compared to 6.54 weeks in 2009-2010. Here the ratio is increasing which is not a good sign for the company and indicates blocking of fund.

7. DEBT EQUITY RATIO This ratio is only another form of proprietary ratio and establishes relationship between the outside long term liabilities and owner funds. It shows the proportion of long term external equity and internal equity funds.

Debt Equity Ratio = Total Long Term debt / Share holder equity

WIPRO:


TCS:


Interpretation

WIPRO:Internal analysis of financial statement Page 40

K.C. COLLEGE

The debt equity ratio of Wipro is ideal for both the years which is 0.40 and 0.31 and indicates that it is still doing better which implies that the company has 40% been financed with debt and the rest with equity for 2008-2009 as against 31% in 2009-2010.

TCS:

The proportion of debt is very low which is 0.01 and consistent in both the years 2008-2009 and 2009-2010. This means that the company is not realising the full potential of its business and has accumulated more equity than required. Company has to refocus on its strategic policies and plans and try to accumulate more debt funds in future so as to make the balance between debt and equity.


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Other methods for the Internal analysis of financial statement include:

PAYBACK PERIOD:

Payback Period is a financial metric that answer the question: How long does it take for an investment to pay for itself? Or, how long does it take for incoming returns to cover costs? Or, put still another way: How long does it take for the investment to break even?

Like other financial metrics such as internal rate of return (IRR) and return on investment (ROI), payback period takes essentially an "Investment" view of the action, plan, or scenario and its estimated cash flow stream. Each of these metrics companies investment costs to investment returns in one way or another. Payback period is the length of time required for cumulative incoming returns to equal the cumulative costs of an investment (e.g. purchase of computer software or hardware, training expenses, or new product development), usually measured in years.

Other things being equal, the investment with the shorter payback period is considered the better investment. The shorter payback period is preferred because:

The investment costs are recovered sooner and are available again for further use.

A shorter payback period is viewed as less risky. It is usually assumed that the longer the payback period, the more uncertain are the positive returns. For this reason, payback period is often used as a measure of risk, or a risk-related criterion that must be met before funds are spent. A company might decide, for instance, to undertake no major investments or expenditures that have a payback period over, say, 3 years.


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TREND ANALYSIS

Trend Analysis of Balance Sheet involves calculation of percentage changes in the Balance Sheet items for a no. of successive years. This is carried out by taking the items of the past financial year used as base year and items of other years are expressed as percentage of the base year.

Trend analysis is a form of comparative analysis that is often employed to identify current and future movements of an investment or group of investments. The process may involve comparing past and current financial ratios as they related to various institutions in order to project how long the current trend will continue. This type of information is extremely helpful to investors who wish to make the most from their investments.

After identifying past and present factors that are maintaining a current trend in performance, the investor can analyze each factor and project which factors are likely to continue exerting influence on the direction of the investment. Assuming that all or most of the factors will continue to exert an influence for the foreseeable future, the investor can make an informed decision on whether to buy or sell a given asset.

A trend analysis may be used to identify and project upswings in the performance of a stock or commodity, or to identify the potential for an upcoming downturn in value. By comparing the financial ratio of the past with the present and identifying key factors that helped the investment to arrive at the current point, it is possible to use the process of trend analysis to project future worth and adjust the components of the financial portfolio accordingly.


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DEBTORS AGEING ANALYSIS

Debtor age analysis reports allows you to select the options to analyse your transactions with each of your debtor accounts according to specified accounting periods. This could be a useful tool to manage outstanding amounts owed by debtors. The term debtors analysis is a wider term and includes a lots of techniques & methodologies of calculating debtors position at a specific point of time.eg.debtors turnover ratio,debtors velocity,debtors collection period.It includes aging debtors analysis also as one of the calculation techniques.Meaning of the term "aging debtors analysis":It is a list which analyses a company’s debtors, showing the number of days their payments are outstanding.

This report will display a break down of your debtor account balances for each of the specified periods for a selected debtor account, or a range of


http://www.turbocash.net/wiki/index.php?title=En-Debtor_Reports_Menu

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selected debtor accounts.

This report consists of eight (8) columns, reflecting the following information:

1. Column 1 - Reference No. - Template:En-This is the reference number of the transaction as entered into the reference field of the Batch Entry screen. If you generate sales documents (i.e. Invoices and Credit Notes), the document number will be displayed in this column. If the Show Transactions field is not selected on the Debtor Age Analysis Options screen, the reference number will not be displayed.

2. Column 2 - Date - Template:This is the date of the transaction. If the Show Transactions field is not selected on the Debtor Age Analysis Options screen, the date will not be displayed.


http://www.turbocash.net/wiki/index.php?title=Template:This_is_the_date_of_the_transaction&action=edit

http://www.turbocash.net/wiki/index.php?title=En-Credit_Notes&action=edit

http://www.turbocash.net/wiki/index.php?title=En-Invoices&action=edit

http://www.turbocash.net/wiki/index.php?title=Template:En-This_is_the_reference_number_of_the_transaction_as_entered_into_the_reference_field_of_the_Batch_Entry_screen&action=edit



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3. Column 3 - Batch Type - The name of the selected batch type in which the transaction was entered and posted (updated) to the Ledger. If the Show Transactions field is not selected on the Debtor Age Analysis Options screen, the batch type will not be displayed.

4. Column 4 - Transaction Total - The total outstanding balance for the debtor as at the selected date of ageing.

5. Column 5 - Current to - The outstanding balances as at the end of the specified accounting period (e.g. the selected current accounting period).

6. Column 6 - 30 Days to - The outstanding balances as at the end of the specified accounting period (e.g. 1 accounting period or month back).

7. Column 7 - 60 Days to - The outstanding balances as at the end of the specified accounting period (e.g. 2 accounting periods or months back).

8. Column 8 - 90 Days to - The outstanding balances as at the end of the specified accounting period (e.g. 3 accounting periods or months back).

At the end of each of the selected debtor accounts, a total will be displayed for each ageing period. At the end of the report, a grand total for all of the selected debtor accounts will be displayed.


http://www.turbocash.net/wiki/index.php?title=En-Batch_Entry

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INTERNAL AND EXTERNAL ANALYSIS

SWOT analysis is a simple framework for evaluating the internal and external environments affecting a company. These environmental factors can be divided into four categories, from which SWOT analysis derives its name. The categories are: strengths, weaknesses, opportunities and threats. Strengths and weaknesses represent the internal environment, whereas opportunities and threats represent the external environment.

In SWOT, strengths and weaknesses are internal factors.

For example:

A strength could be:

Your specialist marketing expertise. A new, innovative product or service. Location of your business. Quality processes and procedures. Any other aspect of your business that adds value to your product

or service.

A weakness could be:

Lack of marketing expertise. Undifferentiated products or services (i.e. in relation to your

competitors). Location of your business. Poor quality goods or services. Damaged reputation.

In SWOT, opportunities and threats are external factors.

For example:

An opportunity could be:

A developing market such as the Internet. Mergers, joint ventures or strategic alliances. Moving into new market segments that offer improved profits.


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A new international market. A market vacated by an ineffective competitor.

A threat could be:

A new competitor in your home market. Price wars with competitors. A competitor has a new, innovative product or service. Competitors have superior access to channels of distribution. Taxation is introduced on your product or service.

Internal factors that affect businesses come from within the business itself, without regard to any outside factors like customers and other businesses. External factors would be opposite.

Internal factors:

1) Employee Turnover/Employee Satisfaction2) Management of Resources3) Research and Development

External Factors:

1) Advertising2) Quality of business reputation, or quality of products business produces3) Competition by other businesses


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DIFFERENCE BETWEEN INTERNAL AND EXTERNAL FACTORS ASSOCIATED WITH SWOT ANALYSIS

Internal factors (strengths and weaknesses) are much more under the control of the organization. The organization can move people around, provide training, change how it uses other resources, and do other things internally to strengthen its ability to achieve objectives.

External factors (opportunities and threats) are far less under the organization's control and can have an impact on the internal factors. Keep in mind that a threat to one organization is often an opportunity for another organization.

For example, the current economy is a threat to many organizations. How do you motivate employees when you are laying them off because consumers cannot afford to buy your products? It is an opportunity for organizations that can position themselves to provide services for people who are laid off or can outsource services to organizations that have undergone a layoff.

Examples of External Uses of Statement Analysis:

Trade Creditors -- Focus on the liquidity of the firm. Bondholders -- Focus on the long-term cash flow of the firm. Shareholders -- Focus on the profitability and long-term health of

the firm. Trade Creditors -- Focus on the liquidity of the firm. Bondholders -- Focus on the long-term cash flow of the firm. Shareholders -- Focus on the profitability and long-term health of

the firm.

Examples of Internal Uses of Statement Analysis:

Plan -- Focus on assessing the current financial position and evaluating


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potential firm opportunities. Control -- Focus on return on investment for various assets and

asset efficiency. Understand -- Focus on understanding how suppliers of funds

analyze the firm. Plan -- Focus on assessing the current financial position and

evaluating potential firm opportunities.


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CONCLUSION

Thus it can be concluded that Internal analysis of Financial statement forms an important part in the management of the company. It helps the firm to determine whether its capital position is correct or no and is a determinant of a healthy financial status of a company.

WHY TO ANALYSE FINANCIAL STATEMENTS? :

1. It gives true and fair picture of a company.

2. It helps in Investment decision.

3. It is used by government for taxation purposes.


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BIBLIOGRAPHY

The information on the project has been obtained from the following sources:

BOOKS REFERRED:

INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT

BY: PRASANNA CHANDRA

INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT

BY: DR R.P.RUSTAGI

WEBSITES REFERRED:

www.wipro.com

http://www.tcs.com

www.universalteacher4u.com/cbse/xii/acctheory/.../page1.htm

http://www.netmba.com/finance/statements/common-size/


http://www.universalteacher4u.com/cbse/xii/acctheory/.../page1.htm

http://www.tcs.com/

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